In the past two years, a growing number of venture capital experts have been warning that the industry has taken on excessive risk in the technology sector creating a bubble.
You can add Bill Gurley, a partner at industry titan Benchmark, to the chorus.
"I think that Silicon Valley as a whole, or that the venture-capital community or startup community, is taking on an excessive amount of risk right now —unprecedented since '99," he told
The Wall Street Journal. The year 1999, of course, was when the dot.com bubble hit its apex.
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This year's second quarter saw 43 tech initial public offerings totaling $12.3 billion, soaring from 17 deals in 2013, according to PwC.
"I think that Silicon Valley as a whole, or that the venture-capital community or startup community, is taking on an excessive amount of risk right now," Gurley said. "In some ways it's less silly than '99 and in other ways it's more silly."
"Risk just keeps going higher, higher and higher," he added. "The problem is that because you get there slowly the correcting is really hard and catastrophic. Right now, the cost of capital is super low here. If the environment were to change dramatically, the types of gymnastics that it would require companies to readjust their spend is massive. So I worry about it constantly."
Even the Federal Reserve has expressed concern about a tech bubble. "Valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries," the Fed stated in a July report.
James Gellert, CEO of Rapid Ratings research firms, told
The Washington Post, "Companies [such as Twitter] are able to go through the IPO process at earlier stages and with less-proven track records."
The risk is that "one shock to the system could see a disproportionate selloff in the tech sector," he said.
Editor’s Note: New Warning - Stocks on Verge of Major Collapse